The fraud-fighting False Claims Act got a boost yesterday when Senator Charles Grassley (R-IA), Senator Richard Durbin D-IL), Senator Patrick Leahy (D-VT), and Senator Arlen Specter (R-PA) introduced legislation to close several loopholes in the Act. Below is their release and floor statements by Senators Grassley and Durbin. Companion legislation will reportedly be introduced in the House of Representatives by Rep. Howard Berman. Senator Grassley, who has been the leading light on this issue expressed his concerns about the state of the False Claims Act back in July, 2007 when he made a floor statement.
POGO commends the Senators and Representative Berman for their leadership on addressing the loopholes which have unnecessarily resulted in tens, if not hundreds, of millions of dollars being lost to the government.
Among improvements proposed, the Act will clarify that government employees can have standing to sue. This issue has inexplicably perplexed the courts, despite the plain language of the act which says that any "person" can file such suits. Some courts have bought the tired line that government employees should not have standing from lawyers representing those corporations who are the target of False Claims Act lawsuits as well as a Department of Justice which takes a ridiculously hostile approach to government employee fraud suits.
For example, in January 2007, a former Department of Interior Minerals Management Service auditor Bobby Maxwell prevailed in a lawsuit against Kerr-McGee with a jury trial finding the company underpaid by $7.5 million to the federal government in oil drilling fees, a verdict that could ultimately bring as much as $40 million when penalties are included. The Department of Justice (DOJ) refused to intervene in the case which is now floundering on a technicality. DOJ has also refused to intervene in the lawsuits filed by three additional Minerals Management Service auditors who documented an estimated $20 million in underpayments by oil giants including Shell. An independent investigative report is expected imminently which will likely vindicate the concerns raised by the whistleblowers filing these suits. Still, DOJ is sitting on the sidelines, putting the taxpayers' recoveries of tens of millions of dollars at grave risk.
The legislation introduced yesterday will also seek to address issues raised by the Custer Battles False Claims Act case. Like the Maxwell case, DOJ also dropped the ball on the much publicized Custer Battles case when it failed to intervene. A jury verdict found a total award of $10 million in the case. Then, in a technical dodge, the Judge threw the case out by finding that the Coalition Provisional Authority was not part of the U.S. Government and so therefore could not be sued under the False Claims Act.
-- Beth Daley
|For Immediate Release|
|September 12th, 2007|
|GRASSLEY, DURBIN, LEAHY, SPECTER SPONSOR LEGISLATION TO FORTIFY TAXPAYERS AGAINST FRAUD|
WASHINGTON --- Sens. Chuck Grassley and Dick Durbin are sponsoring new legislation in response to recent federal court decisions that threaten to limit the scope and applicability intended by Congress with its highly successful 1986 update of the False Claims Act, which has recovered $20 billion for the U.S. Treasury that would otherwise be lost to fraud.
The False Claims Act Correction Act of 2007 has the support and cosponsorship of Judiciary Committee Chairman Patrick Leahy and Ranking Member Arlen Specter. Companion legislation will be introduced in the U.S. House of Representatives by Rep. Howard Berman. Grassley and Berman were the sponsors of the 1986 amendments to the False Claims Act. Those amendments breathed new life into what is known as Lincoln 's Law by empowering qui tam relators to act as private attorneys general and file suit against those who defraud the federal government.
"It's been proven time and again that without the courage and willingness of these individual citizen whistleblowers, the federal government would not have known what was going on or been able to pursue successful cases against those who defrauded the government, including contractors and state and local governments. These settlements have returned tens of billions of dollars that would otherwise be lost and gone forever," Grassley said. "Our new legislation works to make sure recent court decisions won't weaken the government's ability to recover tax dollars lost to fraud, whether its in health care, defense or another areas of spending."
"President Lincoln signed the False Claims Act into law in 1863 to prevent war profiteers and others from defrauding the government and the nation's taxpayers. Sadly, 144 years later, ' Lincoln 's Law' is still needed," Durbin said. "This bipartisan bill modernizes and strengthens the False Claims Act, and will help "Lincoln's Law" continue to serve as an effective tool against fraud."
bipartisan bill strengthens and restores the False Claims Act as one of
our most powerful and effective tools for combating fraud, waste, and
abuse in government," said Senator Leahy. "These protections are more
important than ever as unscrupulous contractors in Iraq and elsewhere
have defrauded American taxpayers of billions of dollars and undermined
our troops fighting overseas."
legislation is as important today as it was when it was enacted during
the Civil War in 1863," stated Senator Specter. "We must continue to
combat fraud and abuse of government programs and waste of taxpayer
dollars. One way to do that is to encourage and protect employees who
step forward to identify fraud. This legislation would ensure that the
law continues to do both.
President Abraham Lincoln sought the False Claims Act during the Civil War in response to war profiteering that defrauded taxpayers. The 1986 updates to the law are today the government's most effective weapon against fraud.
The False Claims Act Correction Act of 2007 would make the following corrections to the False Claims Act.
· Makes corrections to 31 U.S.C § 3729 removing the requirement that false claims be presented to a government employee. This section corrects longstanding problems with the requirement that false claims be presented directly to government employees, instead applying liability directly to any false claim regarding government money or property. This correction ensures that any government money lost to fraud, waste, or abuse can be recovered using the FCA regardless of whether the individual making the false claim directly represents such a claim to a government employee. This problem arose following the D.C. Circuit Court of Appeals decision in U.S. ex rel. Totten v. Bombardier Corp, 380 F.3d 488 (2004) which held that false claims to government grantees (here Amtrak) were not "presented" to a government employee and barred government recovery of government funds lost to fraud.
· Amends the FCA to clarify the dismissal of parasitic claims filed based upon publicly disclosed information. Commonly referred to as the public disclosure bar, the FCA currently allows for the dismissal of FCA cases brought based upon publicly disclosed information unless the relator is the "original source" of the public information. This complex area of FCA law was further complicated when the Supreme Court decided Rockwell Int'l Corp. et al. v. United States, 549 ___ (2007). This decision held that the public disclosure bar requires a qui tam relator to be an original source for all claims that are ultimately settled or upon which a verdict is rendered. Absent this original source, a relator is barred from recovery. This decision dramatically limits the FCA by restricting legitimate qui tam relators who often bring fraud to the attention of DOJ with information DOJ expands and ultimately settles on other grounds. This correction also clarifies it is the exclusive right of DOJ to dismiss relator claims on public disclosure grounds, and not a jurisdictional defense of those who defraud the government.
· Clarifies that false or fraudulent claims against non-U.S. Government funds under the trust and control of the U.S. Government are subject to recovery under the FCA. This clarification would ensure funds administered by the U.S. Government on behalf of third party nations or other entities are protected from fraud, waste, or abuse by extending FCA liability to those funds. This clarification addresses concerns raised by the Federal District Court for the Eastern District of Virginia in United States ex rel. DRC, Inc. v. Custer Battles, LLC, 2006 WL 2388790 (E.D. Va. Aug. 16, 2006), dismissing a jury verdict finding FCA violations for funds allocated to contractors operating on Iraqi funds administered by the U.S. Government.
· Clarifies a split between Circuit Courts of Appeal as to when a government employee may act as a qui tam relator under the FCA. This clarification would explicitly state in statute the original legislative intent of the 1986 amendments to the FCA allowing government employees to act as qui tam relators in limited circumstances when they have reported activities up the chain of command, to the Inspector General, to the Attorney General, and only if no action was taken after 12 months.
· Makes technical and clarifying amendments to the statute of limitations in FCA cases, as well as technical edits to the Civil Investigative Demands authorized under the current FCA.
and Durbin are senior members of the Judiciary Committee. The text of
the floor statements they delivered today marking introduction of the
False Claims Act Correction Act of 2007 follows here.
Floor Statement of U.S. Senator Chuck Grassley of Iowa
Introduction of the False Claims Act Correction Act of 2007
Tuesday, September 11, 2007
One thing that I've learned from oversight is that no matter how engaged the Congress may be, there are just not enough hands to find all the waste, fraud, or abuse in government programs. Instead, we must rely on courageous individuals who speak out and blow the whistle when a government program is not working and taxpayer dollars are being lost.
By sticking their necks out, these individuals often risk everything to fix problems with our government, and for doing so they are as welcome as a skunk at a picnic. However, pointing out fraud is one thing, getting results, fixing the problem, and recouping taxpayer money lost to fraud, waste, and abuse is another.
The key to recouping these lost funds is ensuring we have effective laws on the books. One such law is the federal False Claims Act.
The False Claims Act, which is also known as " Lincoln 's Law," was originally passed by Congress to combat war profiteering by government contractors during the Civil War. The FCA allowed individual citizen whistleblowers to go to court to collect government money that was lost to unscrupulous contractors who were selling false or fraudulent goods to Union troops. This legal mechanism, known as qui tam, is the key component to the False Claims Act, allowing individual citizens to act as private Attorneys Generals to help unearth fraud and recover lost money.
However, following World War II, the FCA was weakened by an act of Congress which lowered the penalties limiting the money the government could recover from fraud. This remained the state of the FCA until 1986, when I authored amendments to the Act which restored the teeth and breathed new life into a law that was designed to protect all American taxpayers.
I'm happy to report that in the 20 years since I introduced and Congress passed the 1986 amendments, the Federal government has used the FCA to recover over $20 billion from those who defraud the government. That's $20 billion that would otherwise be lost and gone forever. More importantly, this $20 billion serves as a deterrent reminder to those who wish to steal from the government.
Today, the FCA again faces a situation where it may not be as effective as intended. Recent decisions by federal courts have limited the FCA in a way that was not envisioned when I authored the 1986 amendments.
These decisions threaten to undermine both the spirit and intent of the 1986 amendments to the FCA. The first case ex rel. Totten v. Bombardier Corp, held that false claims presented to government grantees, in this case employees at Amtrak, were not actually presented to the federal government. As a result, the government was precluded from recovering money lost to fraud and abuse perpetrated against Amtrak.
The second case, Rockwell International Corp. et al. v. United States, was decided earlier this year by the U.S. Supreme Court. In this case, the court interpreted an area of the False Claims Act, known as the "public disclosure bar," which prohibits a FCA case from moving forward if the case was based upon publicly disclosed information, such as a government report, unless the whistleblower filing the case was the "original source" of the information. Here, the Supreme Court held that a qui tam whistleblower was barred from receiving a share in any money recovered unless they were the "original source" of all claims ultimately settled.
This may not sound like a troublesome decision. However, the impact is that often times a case is brought by a whistleblower on a certain set of facts and then expanded by the Department of Justice who ultimately settles on other grounds. As a result, this case creates a disincentive for a whistleblower to bring forth information about fraud as they may not get to share in any part of the recovery.
Finally, the third case that challenges the intent of the FCA is ex rel. DRC, Inc. v. Custer Battles, LLC, decided in 2006. In this case, a jury found that a defense contractor in had defrauded the government of $10 million. However, the judge overturned the jury verdict finding that the money lost was not U.S. Taxpayer money, but was instead Iraqi money under the control of the U.S. Government. As a result of this case, the U.S. Government may not recover for any fraud committed against the U.S. Government if the funds are not American funds, even if the U.S. Government has been entrusted with the management of those funds.
Mr. President, these decisions are contrary to the spirit and intent of 1986 amendments. So today, I am here, joined by Senator Durbin as the lead cosponsor along with Senators Leahy and Specter to introduce the False Claims Act Correction Act of 2007. This bill seeks to correct these judicial interpretations damaging the FCA and is narrowly tailored to ensure that the intent of Congress in the 1986 amendments is upheld.
The False Claims Act Correction Act would correct these three judicial interpretations in addition to making technical and correcting amendments. First, the bill would address the Totten decision by removing the requirement that false claims be directly presented to the government official, instead tying the liability directly to government money and property.
Next, the bill would address the Rockwell decision by requiring the Attorney General to file a timely motion to dismiss claims that violate the public disclosure bar. By allowing the Attorney General to present to the court information about public disclosures up front in a case, the bill would eliminate procedural uncertainties that exist now by allowing public disclosures to be addressed at any time in the case.
The False Claims Act Correction Act also clarifies that non-taxpayer funds under the trust and administration of the U.S. Government subject to fraud are actionable under the FCA. Thus, monies directly under the control of the U.S. Government subject to fraud that are currently outside the scope of the FCA would now be covered. This would correct the problems that have arisen following the decision in ex rel. DRC, Inc. v. Custer Battles, LLC.
Additionally, the bill clarifies a split between Federal Circuit Courts of Appeal that currently exists regarding whether a government employee may file a FCA case. More specifically, the bill provides that a government employee would be able to bring a FCA case based upon information learned in the course of their employment, only when the employee: (1) discloses the fraud to their supervisors, (2) discloses the fraud to the Inspector General of their agency, (3) discloses the fraud to the Attorney General, and then waits 12 months without the government acting. After these conditions are met, then and only then, may a government employee act as qui tam whistleblowers.
Finally, the bill makes two technical corrections to the FCA. The first is a technical correcting amendment that clarifies the statute of limitations. The second is a technical amendment to the Civil Investigative Demands that the Department of Justice is already authorized to issue. These technical corrections will streamline the procedures for filing and prosecuting FCA cases by both qui tam whistleblowers and the Department of Justice.
Mr. President, the False Claims Act Correction Act is a narrowly tailored bill that seeks to ensure that the legislative intent of the 1986 amendments is truly understood. This is not a Democrat or Republican issue. This is an American taxpayer issue. And I'm proud to say that this bill has strong bipartisan support, as I am joined by Senator Durbin as the lead Democratic cosponsor along with Senators Leahy and Specter as other original cosponsors.
I'm glad we have a bipartisan coalition ready to work to fix the FCA with these narrowly tailored corrections. But I encourage my colleagues to not bow to special interests groups who have worked to weaken the #1 tool for recovering government dollars lost to fraud.
American taxpayers deserve a law that detects, prevents, and recovers money lost to fraud. The FCA works and has recovered $20 billion in the last 20 years. However, the FCA can work better. The False Claims Act Correction Act will provide necessary, narrowly tailored corrections to ensure that the FCA works to protect taxpayer dollars into the future. I urge all my colleagues to support this important legislation. Mr. President, I yield the floor.
Floor Statement of Sen. Richard Durbin of Illinois
Introduction of the False Claims Act Correction Act of 2007
Mr. DURBIN. I am pleased to join my colleague Senator Grassley in introducing the False Claims Act Correction Act of 2007. This bipartisan legislation takes important steps to modernize and strengthen the federal False Claims Act and will help protect the government and taxpayers from waste, fraud and abuse of government funds.
During the Civil War, President Abraham Lincoln saw the need for a law that would prevent war profiteers and other unscrupulous government contractors from defrauding the government and the nation's taxpayers. Lincoln urged the passage of legislation that would allow the government to seek damages and penalties against perpetrators of fraud, and that would permit whistleblowers with information about false or fraudulent claims to file qui tam lawsuits on the government's behalf in exchange for a share of the recovered funds. In 1863, Congress heeded Lincoln's call and enacted the federal False Claims Act (FCA), which became known as " Lincoln 's Law."
Lincoln 's Law is still in effect today and it is still much-needed. In recent years, there have been alarming reports of waste, fraud and abuse of government funds in the war and reconstruction effort, in the recovery from Hurricane Katrina and other disasters, in military and homeland security procurement contracts, and in federal healthcare programs. We need strong laws that can expose and root out such fraudulent practices.
The last major update of the FCA took place in 1986, when Senator Grassley and Congressman Berman sponsored amendments that revitalized the FCA and its qui tam provisions in response to widespread reports of defense contractor fraud. Since 1986, the federal government and qui tam relators have worked together to recover over $20 billion in monies that would otherwise have been lost to fraud, waste or abuse in government programs. The recovery of this enormous sum is a victory for taxpayers, and a demonstration of the success of the FCA and its qui tam model.
It has now been twenty-one years since the enactment of the 1986 FCA amendments, and during that time changes in the interpretation of the Act and in the nature of government contracting have threatened to limit the FCA's effectiveness. In particular, several recent court decisions have weakened the intent and application of Senator Grassley's 1986 amendments to the FCA and have limited the FCA's ability to reach certain types of fraud and abuse involving government programs.
The False Claims Act Correction Act seeks to correct these court decisions and to ensure the FCA's utility as an effective tool against fraud. It does so in several ways.
First, the False Claims Act Correction Act clarifies the "presentment requirement" in the FCA. In 2004, the D.C. Circuit Court of Appeals held that liability under the FCA can only be found if the allegedly fraudulent claim is "presented to an officer or employee of the United States Government." This interpretation has been used by courts to dismiss a number of FCA cases where abuses of federal government funds were clearly evident but where the false claims were submitted to grantees or agents of the federal government (such as the Iraq Coalition Provisional Authority) and not directly to government employees. Our legislation would make clear that FCA imposes liability if a person presents a false or fraudulent claim for federal government money or property, and that the claim need not be directly presented to a government employee.
Our legislation also clarifies the applicability of the FCA's "public disclosure bar." The FCA currently allows a relator's FCA case to be dismissed if the case is based on information that was publicly available at the time of the filing, unless the relator was the "original source" of the public information. In its 2007 decision in Rockwell Int'l Corp. et al. v. United States, the Supreme Court held that the public disclosure bar prevents a relator from recovering money unless the relator was an original source for all the claims that are settled or upon which a verdict is rendered. The Rockwell holding is troubling because relators often file actions based on facts which prove to be the tip of the iceberg, and upon further investigation DOJ discovers more fraud and ends up settling or winning the case on the grounds of the latter fraud.
The Rockwell court's interpretation of the public disclosure bar might discourage whistleblowers from filing legitimate FCA cases and alerting DOJ to fraud. Our legislation would preclude a relator from recovery under the public disclosure bar only where the relator derived knowledge of all essential elements of the claim from public disclosure. Thus, only relators who truly contributed no new information to the case would be barred.
Among its other provisions, the False Claims Act Correction Act resolves a split among the federal circuit courts by allowing a government employee to act as a qui tam relator when the employee learns of fraudulent conduct on the job, provided that the employee has first taken steps to report the fraud internally. Our legislation also strengthens the protections in the FCA for whistleblowers, so that whistleblowers who are government contractors and agents can receive the same anti-retaliation protection as employees of the company perpetrating the alleged fraud. Our bill further simplifies the FCA statute of limitations with a clear 10-year standard for all cases, and also makes technical changes to enhance DOJ's usage of the civil investigative demand process in DOJ investigations of potential FCA violations.
The changes that our legislation would make to the FCA are narrowly tailored, and are designed to clarify the FCA's scope in keeping with the intent of the authors of the 1986 FCA amendments. I commend Senator Grassley, the Senate architect of the 1986 FCA amendments, for his devotion to ensuring the effective functioning of the FCA, and I am proud to join him in introducing this legislation to better combat waste, fraud and abuse of government programs.
In sum, the False Claims Act Correction Act will enhance whistleblowers' ability to shine a light on fraudulent conduct involving government funds, and to hold the perpetrators accountable through legitimate qui tam claims. The bill's reforms will ensure that the FCA can continue to serve as a viable tool for recovering taxpayer funds lost to fraud, waste or abuse. The legislation we are introducing today will strengthen the legacy of Lincoln 's Law, and I am pleased to serve as its lead cosponsor. I urge my colleagues to support its passage.